Welcome to EV's point and figures. This blog is dedicated to the use of point and figure charts in technical analysis.

Although P&F first appeared in charts in the 1930's, it is an often overlooked techique for analysing stocks and charts. A poor relation compared to line and bar charts and their range of momentum indicators. Yet few charts provide a clearer picture of the daily battle between bulls and bears for market control.

Like most methods, it should not be used in isolation. It should form part of an analysts 'tool box' and be used with other techniques to help form an overall view.

The charts that appear on this blog and any accompanying comments are purely for information purposes only - my own personal take on where the prices may be heading. They do not constitute investment advice.

Friday, May 27, 2011

Looking at the 25x3 H/L chart above post today's action, the market touched an intra day high of 5,951, so the 5,950 box got filled (ie the market moved from 5,925-5,950). There remains overhead resistance at 6,000 and I remain of the view that the recent break of support at 5,875 was significant. So despite today's action, the pattern remains more bearish. But the bears need to get the market down on Monday, ideally from this level or from 6,000 at worse. If we get a pump up above 6,025, i'll have to go back to the drawing board.

On the 25x3 chart based on the closing price, the index finished the day at 5,938, so we ignore the intra day high. Today's action has disrupted that nice downward sloping pattern of lower highs. Again, I think that recent move below the horizontal blue line after so much support is significant but the bears need to get back in with a 3 box reversal - a fill of the 5,825 would confirm the short term bearish trend. If it moves higher on Monday/Tues, i'll have to re-assess.

A 'bearish catapult in P&F is basically a triple bottom sell signal followed by a small pull back and then a double bottom sell signal (a triple/double bottom combo!)

If you read the above chart left to right, it can be seen that the price falls, finds support then reverses in to an up column. It then reverses down and finds support at the same level. Then reverses back up and then back down, this time breaking through the previous support. As it breaks support on the third attempt its called a triple bottom sell signal.

In the bearish catapult pattern, this is then followed by a pull back producing a descending top and finally a double bottom sell signal.

And here, on this daily 50x3 H/L P&F on the Dow Jones, we have a bearish catapult pattern! The target given from the top is 11,950 and is active.

While the short term view on the Dow based on this chart is bearish, one must concede that the overall chart remains bullish because the main bullish support line has not been breached and there are also two shorter term minor bullish lines in place (which i've inserted).

I am of the view that daily P&F charts are good for showing potential 'bigger picture' trends and reversals but are no good for trading. From 12,850 the Dow had already fallen 350 points before the first confirmed sell signal was given and the catapult pattern was only confirmed at 12,350, 500 points below the top.

The pattern holds until its broken and they need monitoring as they do not always play out (last September was a case in point - see to the bottom left of the chart how the Dow was 'rolling over' very nicely until QE2's announcement gave rise move that (on this 50x3 chart) equated to a (17x50) 850 point move before the next reversal.

And I guess the most obvious failing is that in order for the blue bullish support line to be broken (and a bearish resistance line to be drawn), the Dow has to fall a further 650 points! But the support line does at least confirm the long term trend.

Thursday, May 26, 2011

The 25x3 P&F on the RUT. Both the high/low method and closing method have an active target to the downside of 760.

The long term bullish support line is still in play on the H/L chart above. The recent move down has taken out the more minor support but until the main trend line breaks, the overall uptrend is said to hold.

To show no bias I have included an upside target on the 'closing method' 25x3 P&F above as technically its still there and active. But it can be seen that the most recent action is bearish, with the previous level of support being taken out at 830. Again, the main bullish support line is nowhere near to being challenged but the index is pushing on those minor support lines that i've added.

Monday, May 23, 2011

Today was a good day for FTSE 100 bears with both the H/L AND closing P&F charts breaking previous support!

Here on the 25x3 H/L chart the index finally broke below 5,875, a level where it has found support on no less than 6 previous occasions. It can also be seen that there now appears to be resistance forming at the 6,000 level (red horizontal line). And the bears are also having a go at the bullish support line. Given the recent price action, the bulls may get the index back in to the recent trading range on a bounce but for now, the support is broken and we have active targets of 5,425 and 5,625.

The closing 25x3 chart only plots based on the closing level of the index and again, today we had a new double bottom sell signal, with the bears pushing the index through a level where the market previously got support from the bulls. And it can also be seen that since early May where the bulls have come back in to the market, they are getting pushed back by the bears at lower levels. The pattern has a nice downward slope to it.

The first move down from the most recent high gave a target of 5,625 which has now been confirmed by today's action moving below the previous column of 5 0's.

For the bulls, the long term (blue) bullish support line is still in place and there are two shorter term support lines that the bears will need to push through.

Of course its just one battle in the broader war but given where the recent price action has been and the break of that recent support level, it could mark the start of a more decisive move down. We'll see !

Friday, May 20, 2011

This 1x3 P&F uses the 'high-low' method, which charts based on the daily high/low price (rather than the closing price). The (blue) bullish support line has been broken and we now have bearish resistance, as denoted by the red downward sloping line.

What we have at the top of the chart appears to be a 'high pole' ie a column of at least 7x's that immediately reverses, retraces 50% and continues lower. The first price target given by that column of 0's from the top is 57 (ie 1x13 boxes x 3), 39 less 96.

This 1x3 chart is plotted using the closing level only. So if at the end of the day in an up trend if the index moves a point higher you fill the box and vide versa if the index is trending down. You need a 3 point reveral (1x3) to move from one column to the next.

Here the first target given from the top is 64 which for now is active. But on this chart, using the closing method, we still have bullish support. In addition to the thick blue there are also minor bullish support lines supporting the broader trend.

Confused? My general preference is to use the closing method but the high/low method does recognise the intra-day movements and that break of the trend line is quite telling.

On balance these daily charts are suggesting TNA will trend lower but to re-inforce the picture given by the H/L chart, I would like to see the last column of 0's taken out by a lower column (ie the 80 level broken) on the 'closing' chart and also a move through the shorter term support lines would strengthen the bearish case.

This index is 3x geared so I guess the moves either way can be quite swift.

Wednesday, May 18, 2011

If you strip out the Fukushima 'dip and bounce', it can be seen that there is an epic battle being fought between the bulls and bears on the FTSE 100. The bears cannot push the index below 5,875 - its found support here 6 times recently. Similarly, the bulls have failed to clear 6,100 and

6,075 has also been a major obstacle.

The more recent action might encourage the bears. See how since the FTSE last touched 6,100, the bulls have come up against resistance at LOWER levels. - at 6,025 and more recently at 6,000. In other words the buyer pressure is subsiding and the selling pressure is stronger.

Its interesting to note that this index 'lagged' the QE2 euphoria - sure there was a bounce in Sept but the index did not really shoot higher until Dec/Jan (as denoted by that column ox X's with the number 1 in it (1 being January)). Note that that move pushed the index up towards the 56.5 target given by the initial reveral in September.

Following that move through Jan, the index has reversed and on this 0.5x3 closing point and figure chart, there is currently an active target to the downside in place of 42.

The 0.5x3 chart based on the daily high/low method is also pointing lower. Having peaked in Feb at 55.5, the move down from the top as denoted by the column of 7 o's gave a target of 45 which was activated by the next column of 0's. The bears have been successful in pushing this index lower - since April, each time the bulls came back in and moved the price up, sellers came back in at lower levels than seen previously.

Tuesday, May 17, 2011

Following on from last week's post and post today's price action, the 1,250 price target on the 5x3 H/L P&F has been activated (the current column of 0's) going below the previous column (of 0's).

The bears have made some inroads in recent days BUT:

* there are two minor bullish support lines to push through,* there is also an active target of 1,400 still in place* and it can also be seen that since March there have been two previous occasions where the bears have pushed the market lower, only for the bulls to come back in and push the market higher (although the first one was the Fuskshima sell off/recovery).

Note also that the S&P did pull back from the intra day low to close at 1,329. If it can get back up to 1,335 tomorrow, this column of 0's will reverse in to a new column of X's (as the 3 box (5x3) 15 point revesal will be satisfied).

We are at a bit of an impasse here - the downside target is active but its not compelling.

On the 1x3 H/L chart - need to see this $149 level hold ideally. Recent support has been punctured, giving active targets to downside of $142 and $124. The 'closing' 1x3 chart has an active target to downside of $129.